Why Donald Trump will win the US election

In a few days' time, the USA will pick a new president. Whoever gets the job will become the most powerful person on the planet. But this election has been a nasty affair, with more mudslinging than any other in living memory, and either candidate could win. For financial markets, that is a massive problem.

Put to one side the debate about how Donald Trump ever won the Republican nomination for the White House. More significant is that securing party backing gave Trump's brand of incendiary rhetoric an international platform. Humorously, it's something Americans abroad now feel the need to apologise for.

Financial markets want a Hillary win, and they'll dump stock if it looks like that has been jeopardisedOf course, Hillary Clinton is no saint, and Democrats stand accused of backing the wrong president's wife.

What a new FBI probe into Clinton's use of private emails while secretary of state will uncover is not clear; probably nothing.

But there's "no smoke without fire", according to voters, and an already weak Democrat candidate watched her 12-point lead in the polls disappear.

It's no reason to panic, however, and successful presidents have come back from worse. But financial markets want a Hillary win, and we've seen this week that they'll dump stock if it looks like that result has been jeopardised. The chart below tells you how jumpy traders are.

That a typically Republican Wall Street is desperate to keep Democrats in the White House tells you all you need to know about Trump's daft and divisive politics.

Why the incumbent loses 4.3 times out of 5

But who's gonna win? The odds are certainly stacked firmly in Clinton's favour at 74%, but this weekend will be crucial, and anything could happen. As Legal & General equity strategist Lars Kreckel reminds us, Brexit odds were at 24% when the EU referendum polls opened and fell as low as 11% when the polls closed.

Markets hate uncertainty, and Trump's unpredictability makes him dangerous for investorsAnd Sam Stovall, stockmarket historian and chief equity strategist at S&P Global Market Intelligence, has run the numbers and uncovered what he believes is a pretty reliable indicator.

According to Stovall's stats, the performance of the S&P 500 has predicted the outcome of all but three presidential elections since the Second World War. If the broad-based index rises between 31 July and 31 October, even by only a small margin, the incumbent party has won 82% of the time. If the market falls, the incumbent party lost 86% of the time.

That's great news for Trump, but bad news for Clinton. When the market closed on Monday 1 August, the S&P was trading at 2,170. Just a few weeks later it made a record high. But the trend has turned lower since early September, and the index finished October at 2,129, down almost 2% over the three months.

Time to stock up on bottled water and tinned fruit?

What if Trump makes it to the White House?

"In the short term, we would expect to see risk aversion rise," says Michael Grady, senior economist and strategist at Aviva Investors. "That would likely result in a sell-off in equities, a rally in fixed income and a mildly stronger US dollar.

Markets famously hate uncertainty, and Trump's unpredictability makes him dangerous for investors.

Experts predict a plunge in stock prices of at least 10% if he gets elected. That's worse than the immediate aftermath of the Brexit vote when the FTSE 100 fell less than 9%. And while London almost immediately began one of the most incredible stockmarket rallies of all-time, there'll be no quick currency fix for the US if Trump nicks it.

Says Grady: "Over time if his economic policy platform were passed by Congress, and his more extreme trade policy views shelved, we would expect to see higher inflation, a sharp increase in US government debt issuance, further dollar strength, while US rates would be expected to rise faster and the yield curve steepen."

Unfortunately, Republican tax cutting hasn't worked in the past - see Reagan and George W BushAnd there's a warning from Foremost Currency Group that "all the excellent work done over the years to promote world trade would be undone in a relatively short period of time".

Indeed, Trump has been very vocal about renegotiating trade agreements should he win, which could seriously affect exporters.

The North American Free Trade Agreement (NAFTA), signed with Canada and Mexico, has already been called by Trump "the single worst trade deal ever". And it's this tough-talking that appeals to the mass unemployed in former industrial powerhouses like Michigan, Ohio and Pennsylvania.

"Voters in these states not only are more skeptical of trade and trade agreements but also attach more salience to trade as an issue," explains Cullen S. Hendrix at the Peterson Institute for International Economics. Trump's protectionist policies will also resonate with Rust Belt migrants in Florida, another battleground state.

Unfortunately, Republican tax cutting hasn't worked in the past - see Reagan and George W Bush - and probably won't this time.

It seems Trump's spoiling for a currency war, too. Promising to brand China a "currency manipulator" could also disturb the hornet's nest and trigger ugly scenes on the global foreign exchange market.

Is Trump good for anyone?

Trump's promise to cut corporation tax would likely benefit all sectors, argues Grady, especially the big IT firms with oodles of cash squirrelled away overseas. However, Amazon stock is already down over 9% in less than two weeks, Apple and Facebook have fallen 8%, and both Google-owner Alphabet and Tesla Motors are 6% lower.

Apple CEO Tim Cook is no fan. He held a fundraiser for Clinton over the summer, disturbed I'm sure by Trump's warning that US companies will be blocked from chasing cheap labour overseas in an effort to bring manufacturing jobs back to America.

Clinton is a strong advocate for renewables and tightening climate policyLike here, the minimum wage is the subject of some debate, but there could be problems either way. A Clinton wage hike would cost employers a fortune, while a Trump crackdown on illegal immigration could also trigger wage inflation. That's bad news for the agriculture, hospitality and retail sectors, which depend on cheap labour.

Already, alongside Friday's US jobs report, the Bureau of Labour Statistics told us average hourly earnings rose 10 cents last month, taking the year-on-year gain to 2.8%, the fastest increase since 2009.

"Clinton is a strong advocate for renewables and tightening climate policy, claiming she wants the US to generate enough renewable electricity to power every home in America in the next ten years," writes Grady.

"Her policies will benefit the clean energy sector - particularly solar and wind. Trump, by contrast, is a self-declared 'non-believer' in man-made climate change and has pledged to cancel the Paris Climate Agreement and scrap the Clean Power Plan, which was unveiled only last year. That would provide a boost to energy and coal stocks."

It's widely accepted that Trump's spending plans and policies will benefit defence contractorsSpending tens of billions on major infrastructure projects would also trigger a windfall for construction and infrastructure companies, whichever party wins.

It's widely accepted that Trump's spending plans and policies will probably be beneficial for defence contractors, and certainly better for biotechs than Clinton, who has promised to clamp down on excessive price increases for pharmaceuticals.

At the first sniff of a Trump presidency, expect a spike in the popularity of gold, a safe haven when equity markets go bad. That might reflect well on UK-listed miners like Randgold Resources, Highland Gold, and Azerbaijan-focused gold, silver and copper company Anglo Asian Mining.

ii view:

One of two things will happen on Tuesday night. Either Trump wins and the stockmarket collapses into the abyss, or Clinton wins and the status quo is restored, triggering a rush back into equities.

Again, there will be volatility whoever the successful candidate is. Clinton, we know, is bad for big pharma, but it will take many months to discover just how badly Trump's policies will impact the US economy and company profits.

As always, the market loves that combination of value and a decent yieldUntil then, it's all guesswork. The more guesswork involved, the greater the volatility. Brave investors willing to bet against Trump will absolutely love the buying opportunity offered by this sell-off.

Don't fancy Clinton's chances? Then load up on safe haven assets. Long-term investors couldn't care less.

One thing to mention; many of the stocks in our recent Dogs of the Footsie feature are among the best performers since selling took hold this week - easyJet, Dixons Carphone, Sainsbury's, IAG, Next, M&S and Taylor Wimpey. As always, the market loves that combination of value and a decent yield.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.